R2 was created in May 2011 by Blake Krikorian, whose Sling Media Inc., developed the Slingbox for watching TV on computers. R2, meanwhile, is working on technology to distribute digital media to TVs, the Journal said.

The Silicon Valley-based R2 also talked to Google and Apple about a possible deal, people familiar with the matter told the Journal.

The purchase comes as Microsoft expands Xbox from its early days as primarily a videogame system to a hub connecting traditional TV with the internet.

As of 10:05 a.m. ET Thursday, Microsoft stock was down .49 percent to $27.49 per share.